Regulatory Pitfalls of which Most Nonprofits are Unaware

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There are numerous regulatory pitfalls concerning sales and use tax, of which your nonprofit may be unaware. Here are just a few:

  • Raffle tickets are not tax deductible.
  • If nonprofits don’t withhold taxes on prizes, they are required to pay the taxes themselves.
  • The cost of special event tickets is not 100% deductible if guests receive something in return (dinner, golf, etc.). The nonprofit is required to notify attendees of the value of the nontax-deductible portion of the ticket.
  • If the nonprofit gives volunteers gift cards or cash, they cease being considered volunteers and become employees.
  • There are several tax forms that the organization is required to fill out upon receipt of donated cars; the IRS has strict qualifiers for these types of donations.

However, the following are NOT subject to sales or use tax:

  • The gifting of merchandise for a true donation: an amount someone gives your organization without expecting to receive merchandise of equal value in return.
  • Sales of tickets for concerts, movies, plays, shows, and similar events when food and meals are not included in the ticket price.
  • Sales of tickets for game booths when prizes are not guaranteed to every ticket purchaser.
  • The sale of travel, home rentals, guide services, personal services, tutoring, and other things of value that are not physical products.
  • Sales of gift cards, gift certificates, and coupon books.
  • Membership drives and other fundraising activities that do not involve the exchange of merchandise or that include merchandise premiums of a much lower value than the donation or membership amount.
  • Sales of advertising that does not involve exchanges of merchandise or goods.
Posted in Federal Regulations, Tax Deductable IssuesTagged , , ,